Economy of Saudi Arabia

Lore & Background

Saudi Arabia’s economy is defined by its heavy reliance on petroleum, possessing the world’s second-largest proven oil reserves and fourth-largest natural gas reserves. It is the leading global exporter of oil and a founding member of OPEC. The petroleum sector accounts for roughly 42% of GDP, 87% of budget revenues, and 90% of export earnings, though oil and gas together represent about 22.3% of GDP and 55% of government revenue, with figures fluctuating with oil prices. The state-owned enterprise Saudi Aramco manages most reserves and production, and the economy includes major refining and chemical manufacturing vertically integrated within Aramco. Nearly every large business has extensive ties to the state. Monetary policy is anchored by a fixed exchange rate of the Saudi riyal to the U.S. dollar. The private sector contributes another 40% of GDP, supported by an estimated 7.5 million foreign workers (2013) in oil and services. In 2016, the government launched Saudi Vision 2030 to reduce oil dependency, but by 2022 only modest progress had been made. Historically, Saudi Arabia was a subsistence economy until oil was discovered in commercial quantities in 1938. The Arabian American Oil Company (Aramco) managed development, including the first Middle Eastern offshore field in 1951. Oil production rose from 500,000 barrels per day in 1949 to 1 million bpd by 1954. The 1973 oil crisis drove prices from $3 to nearly $12 per barrel, boosting GDP from $15 billion to $184 billion by 1981. After nationalizing Aramco in 1980, Saudi Aramco was established in 1988. The 1980s oil glut saw prices drop from $36 to $14 per barrel, and production fell 80% by 1985, leading to budget deficits. In 1993, Aramco absorbed SAMAREC to become the world’s largest fully integrated oil company. Per capita income fell from $11,700 in 1981 to $6,300 in 1998 due to lower revenues and population growth.

Reader's Guide

The Saudi economy is defined by its overwhelming dependence on petroleum, which accounts for roughly 87% of budget revenues, 90% of export earnings, and 42% of GDP. The state-owned Saudi Aramco manages the kingdom's oil reserves and production, which are the second-largest in the world. The economy experienced dramatic booms and busts tied to oil prices, such as the 1973 oil crisis and the 1980s oil glut, when production fell 80% and budget deficits emerged. The private sector contributes about 40% of GDP, and the government has encouraged its growth to create jobs for a swelling population. The economy is also characterized by a fixed exchange rate to the U.S. dollar and extensive ties between major businesses and the Saudi state.

Did You Know?

• Saudi Arabia has the second-largest proven petroleum reserves in the world, after Venezuela.
• The petroleum sector accounts for roughly 87% of Saudi budget revenues and 90% of export earnings.
• Saudi Arabia was a subsistence economy until the 1930s, when an oil concession was signed with Standard Oil Company of California.